Americans are experiencing one kind of economy – high unemployment, expensive housing, rocketing food prices and costly medical care – but the US Federal Reserve is seeing another kind of economy: the one in which you shouldn’t believe your own eyes.

It all comes down to inflation: the measure of rising prices that we all experience in our daily lives. And inflation is rising – fast, much faster than the Fed anticipates. Meat prices are rocketing at plus-7.7% in 2014, and dairy is up 4.2%, a considerable hit to family shopping budgets. Shelter – either mortgages or rent costs – are rising at about 3%, while car insurance is up 5%, and tuition costs and public transportation are both up more than 3%.

This means consumers are surrounded by rising prices on all sides – paying higher bills, paying more money at the market, paying more just to get to work. At the same time we’re shelling out more for these necessities, our incomes are stagnant. No more money is coming in.

Yet the Fed, which just wrapped a two-day meeting to diagnose the economy, is dismissing these real-world costs as a trick of the charts – a mere math problem rather than a real snapshot of the challenges facing Americans. And its new leader, Janet Yellen, has now officially risked her reputation on a potential misreading of the concerns of regular people.

The data we're seeing is noisy … inflation is rising in line with committee's expectations.

Translation: Nothing to see here, folks. Move along.

This blinkered view is alarming.

Yellen is perhaps the most sympathetic Fed chair to regular Americans in at least the past 40 years. She’s also the most transparent with the public – the exact opposite of the gnomic Alan Greenspan, who rarely spoke publicly except when forced. Yellen has shown a lot of evidence of her attention to real Americans: she has talked about the burden of unemployment. In a profession obsessed with Wall Street, Yellen has talked about the struggles of common people and rejected the color-by-numbers world of specific predictions to help traders make a profit on Wall Street. She has been, in her first four months on the job, the Wolf of Main Street.

There’s an empathy gap here. Unemployment is a serious problem, yes. It’s the core economic crisis facing America, because it is extreme and long-lasting for the past six years.

But inflation is also a measure of how households are suffering. The Fed’s chirpy insistence that “economic conditions are improving” fails to reflect the experience of Americans who are finding less money in their already-squeezed budgets.

The key problem is that the Fed is not watching the kind of inflation measures that the rest of us do. We all experience the rising inflation as measured by the Consumer Price Index, which includes all kinds of every day products. That's very high, at 2%.

The Fed, on the other hand, watches a different - and more misleading - measure of inflation, which doesn't include food and gas. Look at your budget. How much money are you spending on food and gas? That's why the Fed is out of step.

Even analysts are baffled by the Fed’s happy tone, which seems much more suited to a bubble of irrational exuberance rather than our own endless depressive malaise.

In a note this week titled, “Inflate This,” analysts at Keefe Bruyette & Woods questioned whether the Fed’s tendency to put a shiny gloss on the recovery makes sense:

The traditional rationale for [lower interest rates] is to cool an overheated economy. … [A]t least that's how the textbooks write it up.

It's pretty clear we're not there. No matter how you want to view GDP growth, labor markets, or consumption growth, it's clear that not only are we nowhere near that overheated economy stage, it doesn't even look like we're remotely close.

Even Yellen seemed slightly unconvinced by the Fed’s insistence that the economy is improving. She rattled off a list of reasons why the economy should be growing instead of shrinking (which is what it’s doing): it’s allegedly easier to get loans, and households “are becoming more comfortable with their debt levels” – and with their rising home prices, rising stock prices and an improving global economy.

The important common bond among all those factors: the represent the Fed of magical thinking. They’re all dependent on people believing that things really aren’t so bad. Six years into a weak recovery that’s turning darker, that’s not enough.

If nothing else, the one kind of inflation the Federal Reserve should watch out for is inflation of its own optimism. Otherwise, the Fed is ignoring what’s happening to the rest of us.